Table of Contents
The Electric Vehicle Revolution: Tech on Track to Accelerate
Q&A with: Gordon Bittig, Executive Vice President at SolarWorld Americas Inc.
Managing Regulatory Compliance Risk and Investigations
PErspective in CLEANTECH
Did You Know...
By Tim Clackett
The Electric Vehicle Revolution: Tech on Track to Accelerate
When Elon Musk unveiled the affordable Tesla Model 3 in March, pre-reservations for the model shot through the roof, hitting 400,000 and counting. The excitement for Tesla’s newest model is reflective of a larger trend in the industry surrounding electric vehicles (EVs).
Every major car maker—from Toyota and Audi to Ford and Chevy—is jumping on the EV bandwagon. And, according to Bloomberg New Energy Finance (BNEF), it will prove to be lucrative: Sales of EVs are forecasted to hit 41 million units by 2040. This would be almost 90 times the figures for 2015, when EV sales were estimated at 462,000 units—a number already up 60 percent from 2014. Companies are investing big: Ford plans to put $4.5 billion toward EVs, and Volkswagen recently announced an $11.2 billion investment in the sector by 2025.
The projected mass adoption of EVs by the consumer marketplace has implications far beyond the automobile industry, which provides a tangible opportunity for tech companies that can help enhance the EV experience and reduce the cost.
Driving the trend forward
Although 1.3 million EVs have been sold worldwide to date, this still represents less than 1 percent of light duty vehicle sales last year, according to BNEF. This could be partially due to the challenges that EVs have faced—specifically, limited driving range and high prices—when compared to traditional gasoline-powered vehicles. Further EV adoption will come with beneficial technology that addresses these two areas.
Additional EV adoption will likely be motivated by tightening CO2 emissions regulations, as well as the millions of dollars in government subsidies that encourage greater industry participation in the EV revolution. In 2012, President Obama invested $5 billion in EVs, including loans and grants to car and battery producers, spending on charging stations and $7,500 tax credits to car buyers.
Further, the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA) created emission standards that apply to light duty cars and trucks in model years 2012‑2016 (first phase)
and 2017-2025 (second phase)
to result in an average industry fleet-wide level of 163 grams/mile of carbon dioxide (CO2) by model year 2025. Certain states, such as California, have even taken matters into their own hands to push forward additional laws
encouraging the adoption of EVs.
What’s next for EVs?
Continued technological innovation is certain to benefit EVs and, in turn, their adoption. Technology companies looking to capitalize on this massive market opportunity could do so in the following areas:
Evolutions in Range
EVs are limited by range, but expect to see advancements. The typical driving range for EVs is 60 to 120 miles on a full charge, although a few yet-to-be-released models will break that barrier. Both the Chevy Bolt and the Tesla Model 3 will have ranges of at least 200 miles on a single charge and will be available for under $40,000—an offering that will surely put pressure on other producers to up keep the pace. Hybrids are further limited by driving range; some models only produce 15-24 miles without a charge. But the 2016 Chevy Volt has a 53-mile electric range, which makes it likely that ranges between 40 and 60 miles will become the norm for future plug‑in hybrids.
With sales of EVs increasing, convenient charging stations should become more prevalent. There are roughly 33,000 charging stations across the country, or about one for every 10 electric vehicles, according to ChargePoint. In response to demand, companies such as Google, Coca-Cola and Walgreens have established charging stations at stores and facilities, and car manufacturers like Nissan are enticing buyers with years of free charging stations. Even BMW and Volkswagen teamed up last year to build 100 “express charging corridors” on the East and West Coasts.
With smart technology at the forefront of nearly everything, car automation is the next frontier for EVs. We’ve already seen cars with automated features such as parking assist, automatic braking and smart cruise control, so a fully automated driving experience is not too far off. In fact, Google’s self-driving car project has created autonomous vehicles that see 360 degrees without being distracted like human drivers, and researchers are even teaching the vehicles to honk at other vehicles. EV automation would provide self-diagnosing technology that would reduce trips to service providers, as well as quicker fixes via software updates. Tesla upgraded its Model S last year to become a nearly driverless car with a suite of autopilot capabilities through a software update, and many other car companies are following suit. However, this progress is not without setbacks and challenges. Additional technological advancement will need to be made to address safety concerns critical to market acceptance of these technologies.
Battery Energy Density
Improved battery energy density will be a hurdle to overcome. Most lithium-ion batteries fall short of the amount of energy in a gallon of gasoline—the energy density standard to which the driving public has become accustomed to over the years. One new technology that shows promise is lithium-air, which results in less degradation than in other types of batteries.
By making cars lighter through the use of new materials and techniques, improvements in EV range and reductions in EV cost are likely to follow. Last year, Ford announced its use of aluminum for much of the frame in its top-selling F-150 line of trucks. Ford is claiming up to a 20 percent improvement in F-150 fuel efficiency, due largely to the fact that it is about 700 pounds lighter.
Smart Grid Technology
The smart grid is a next-generation technology and communications network that will increase the efficiency of the power systems in cities and make it possible to manage energy supply and demand. The smart grid must be able to handle the rapid growth in EVs that we will see over the next few years, including the swift addition of EV charging stations across the country. Utilities must also invest in smart devices for the grid to support the growth in EVs, including upgraded voltage regulators, capacitor banks and communication networks.
With researchers working on improved technologies, wider adoption of EVs is likely to follow and perhaps even reach the mass levels that BNEF predicts for 2040. Tech and auto companies innovating in the EV space may also qualify for the Federal Research and Development (R&D) Tax Credit, which allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Considering the lucrative opportunity at hand, smart technology companies across all sectors stand to capitalize on what is undoubtedly the next revolution in clean technology.
Tim Clackett is a partner and leader of the Cleantech practice at BDO. He can be reached at email@example.com.
Q&A with: Gordon Bittig
Executive Vice President at SolarWorld Americas Inc.
What does SolarWorld do?
SolarWorld manufactures solar power solutions that contribute to a cleaner energy supply worldwide. The group, headquartered in Bonn, Germany, employs about 3,820 people—many of whom carry out production in Hillsboro, Oregon, as well as in Freiberg and Arnstadt in Germany. From raw material silicon to crystalline silicon solar wafers, cells and modules, SolarWorld manages all stages of production—including its own research and development. Through an international distribution network with locations in the United States, Europe, Singapore, Japan and South Africa, SolarWorld supplies customers all over the world.
How does the company differentiate its products from other solar manufacturers?
SolarWorld is a high-technology, high-efficiency player in the solar market. Thanks to innovation unfolding both centrally and across the group’s manufacturing sites, this differentiation means we are constantly pushing up the power density of our solar panels to provide customers with more watts per unit and push down their solar energy costs. In diversifying our product portfolio, we are also re-engineering the fundamental format of a solar panel—most recently, offering both bifacial and glass-glass modules. Bifacial solar panels generate electricity by capturing light on both front and back sides, whereas glass-glass modules bear extraordinarily high and long performance guarantees because glass is used to protect them on both sides. All products come with the backing of a vertically integrated, pure-play producer with more than 40 years of experience—a unique differentiator.
Who are your customers?
End customers include anyone who adopts solar power as an attractive long-term investment—from individual consumers buying solar for their rooftops, to owners of commercial buildings looking to hedge against ever-rising utility bills, to integrators of utility-scale projects. As a practical matter, however, SolarWorld is largely a wholesale manufacturer that uses distribution partners to access most segments of the photovoltaic marketplace.
What sort of growth do you see in solar in the next five years?
Global growth shows all the promise in the world of remaining robust in the coming years. The U.S. market is particularly strong, with recent year-over-year growth reaching or exceeding the 25-30 percent range. Developed and emerging markets alike are increasingly waking up to solar’s potential.
What new solar opportunities are you seeing in the market?
The opportunities run the gamut. Of particular importance recently are large solar projects that SolarWorld has the capability of undertaking from design to completion as we oversee engineering, procurement and contracting, among other functions. Market-wide, community-based solar-purchase programs are also making strides in enabling more individuals and families to own solar systems, or even shares of systems.
What sort of growth trend is SolarWorld experiencing?
We are expanding plant capacity as fast as we can. This expansion drive includes a brand-new factory producing 72-cell modules, as opposed to the historically conventional 60-cell modules, at our hub for the Americas in Oregon.
What sort of challenges might result from this growth?
Despite overwhelming demand, corporate planners must invest judiciously to maintain sustainable growth, and juggle owned capacity with contract manufacturing along the way.
Are government incentives still important in the growing take-up of renewables? Have they declined in importance?
While solar is taking root in virtually all markets, government policies—including incentive programs—are still shaping the industry’s growth trajectories within various regions. Importantly, the U.S. federal government late last year adopted a five-year extension of a key federal investment tax credit that offers a 30 percent tax credit on solar purchases. Various states have adopted a range of policies and incentives that determined where solar is growing fastest across the national map.
Gordon Bittig is executive vice president for finance for SolarWorld Americas Inc., the largest U.S. crystalline-silicon solar manufacturer for more than 40 years. In that role, he oversees financial planning, accounting, cost controlling, legal affairs and related functions. Bittig started with SolarWorld in 2008 as head of financial controlling before assuming a role as vice president for finance and sales operations in April 2013, and then his current position in October 2013. Before joining SolarWorld, he worked as a managing auditor and tax advisor for Rentrop & Partner KG in Bonn, Germany, and as a senior auditor for KPMG in Cologne, Germany. He earned the equivalent of a master’s degree in economics from the University of Bonn after serving for two years as an officer in the Germany military.
By Gerry Zack, Managing Director, BDO Global Forensics
Managing Regulatory Compliance Risk and Investigations
When the Volkswagen scandal broke, a renewed emphasis on compliance rippled throughout the cleantech industry. Volkswagen’s apparently intentional use of a “cheat device” to foil emissions testing is a stark reminder of the important distinction between compliance oversight and a planned act.
The Volkswagen case may be the most heavily publicized case of regulatory noncompliance in the automotive industry in recent memory, but it is certainly not the only one—nor will it be the last. More recently, Mitsubishi came forward and acknowledged it manipulated fuel economy tests by underestimating the level of air and tire resistance a car would encounter on the road when testing was performed. Other cases are just beginning. French authorities recently raided multiple PSA Peugeot-Citroen facilities, and U.S. authorities have begun looking into allegations of non-compliance in connection with diesel engines in the Mercedes Benz line of Daimler.
Numerous cases have preceded Volkswagen’s recent one. In 2014, Hyundai and Kia paid fines to settle U.S. claims that mileage ratings were inflated. Ford lowered mileage ratings for hybrid car models in 2013 and 2014. The full list goes on much further.
Compliance violations also extend to the supply chain in the auto industry. In Japan, auto parts supplier Takata Corporation admitted to rigging airbag inflator test data. These cases also illustrate the international scope of compliance risks. Just looking at the cases referenced here, enforcement investigators from Japan, France, Germany, United Kingdom, and the United States are involved. Some of these companies face investigations from multiple countries.
Regulatory compliance risk is not unique to the automotive industry. Other sectors that touch or are within the cleantech industry have also seen their share of compliance enforcement actions. For example, the biofuel sector. The 2005 Energy Policy Act and the 2007 Energy Independence and Security Act established tax credits and subsidies associated with the production of clean, renewable biofuels. A number of compliance enforcement actions followed.
Most recently, an engineer admitted to rubber-stamping fraudulent reports submitted by two biofuel companies to the Environmental Protection Agency (EPA). Independent engineers play an important role by certifying plant capacities when biofuel producers apply for the EPA’s renewable fuel credit program. In this case, owners of the two biofuel companies were charged in late 2015 in connection with allegedly claiming inflated levels of production. The independent engineer simply took information submitted by the two companies and used it in his engineering studies without verifying its accuracy.
Owners of the two companies were charged with a variety of violations, including allegedly claiming subsidies for more than twice the level of fuel they actually produced.
In another case, three brothers pled guilty to a scheme in which they sold 35 million gallons of biodiesel to customers by falsely claiming it was eligible for the $1/gallon tax credit and biodiesel credit.
Other cleantech sectors, like solar and wind, have been investigated due to concerns over compliance with government regulations, whether directly related to cleantech operations or not. In 2014, U.S. Virgin Islands senator Alvin Williams was sentenced to 52 months in prison in connection with, among other offenses, accepting $35,000 in bribes from the developers of wind turbines at Tutu Park Mall in the Virgin Islands.
In many cases, attributing a violation to a corporation is straightforward when the acts are intentional and directed by one or two individuals at the highest levels of the organization. Even in cases where senior management was not directly involved in fraud or noncompliance, but was aware of the violation and failed to correct it, the company—and often the executives as individuals—may be charged. The prosecution of individuals is likely to increase in light of recent developments from the U.S. Department of Justice, which announced it will focus on individual accountability in addition to corporate sanctions.
But what surprises some is the fact that criminal acts by employees can create liability for a corporation even if senior management had no knowledge of the violation or the breakdowns in internal controls that led to the violation. A recent case involving Appalachian Laboratories, which performs water sampling for coal mines, illustrates this concept.
In 2014, a field supervisor for Appalachian admitted to conspiring to violate the Clean Water Act by diluting, distilling and outright substituting water samples so Appalachian “could maintain the business with the coal companies that we were working for.” The supervisor referenced the pressure that coal companies placed on companies like Appalachian to “get good water data.”
In response to the employee’s guilty plea with the U.S. Department of Justice, the West Virginia Department of Environmental Protection (DEP) promptly revoked Appalachian’s state certification. Appalachian appealed to the West Virginia Environmental Quality Board by claiming there wasn’t any evidence that the company was aware of or involved with the tampering performed by the employee. But the revocation was upheld, and the DEP concluded the employee’s admission “is evidence of falsification/tampering within the lab, regardless of how many additional employees, if any, were involved.”
The Appalachian employee’s acts were intentional. But even accidental violations at non-executive levels within a company create liability. The Lower Colorado River Authority (LCRA) was hit with a $33,151 fine for inadvertently failing to renew a required state pollution control permit at a gas power plant. The permit is required to operate special equipment that decreases the emission of nitrogen oxide into the atmosphere. LCRA continued to operate the equipment for 17 months after its permit expired.
The preceding cases are confined to the U.S. But the auto industry cases we started with are not the only ones that illustrate enforcement outside the U.S. The entire cleantech industry has seen greater global scrutiny in recent years.
In 2013, fraud and corruption charges were filed against five individuals in Italy in connection with awarding public contracts for wind farms in Sicily. Also, in 2013, Russian authorities investigated the embezzlement of more than $30 million from hydropower company RusHydro.
The need for a strong internal compliance program and investigation function is well-established in some industries, including health care, pharmaceuticals, financial institutions and government contracting.
And now, the cleantech industry needs to be added to this list. Compliance has never been more important in this industry. Many of the government programs and regulations that have been created, whether to help or to regulate the industry, have not been matched with sufficient government enforcement. But that is changing. Government agencies are paying greater attention to compliance with rules and regulations. And this trend clearly extends well beyond the auto industry into other components of cleantech.
As a result, now is the time to shore up any deficiencies in compliance and ethics programs, as well as internal investigative functions. Key elements of a compliance program include:
- Awareness and training on compliance requirements
- Risk assessments to identify vulnerable compliance risks (including assessment of risks that third parties, like vendors, that could create)
- Mitigation steps to manage compliance risks
- Monitoring for signs of noncompliance
- Investigations of possible or alleged noncompliance
- Remediation and follow-up on investigation results
There is no “one-size-fits-all” approach to compliance programs—each must be carefully tailored to the unique needs of the specific regulatory environment in which a company operates.
Gerry Zack is a managing director in BDO’s Global Forensics practice. He can be reached at firstname.lastname@example.org.
PErspective in Cleantech
A feature examining the role of private equity in the clean technology market
Fundraising in the cleantech sector broke records in 2015 by reaching $348.5 billion, according to recently revised reports. It’s currently outpacing the fossil fuels industry two to one, which has been hurt by the long-term, low-cost-of-oil environment, according to Bloomberg. Renewable energy is becoming cheaper to produce and store, making the sector less dependent on government subsidies, which have traditionally been one of its key drivers.
But the cleantech sector is unlikely to surpass 2015’s record-breaking fundraising this year, due to a lull in Chinese investment activity in Q1 that followed a rush at the end of last year to take advantage of expiring clean power tariffs, as reported by Bloomberg New Energy Finance (BNEF). And while activity in the second quarter ramped up, global clean energy investment declined 32 percent year over year, at $116.4 billion, according to a subsequent BNEF report.
Investment from China, which last year was the largest investor in renewable energy, has continued to decline following a drop-off in the fourth quarter of 2015, down 34 percent to $33.7 billion in H1 2016. While cleaning up pollution remains a top priority for the Chinese government, and will likely require infusions of capital from both public and private entities, private-sector investment in China across all industries slowed significantly this year.
European investment has shown slight upward growth, up four percent at $33.5 billion. This increase comes on the heels of a tepid 2015, when the European share of the cleantech market dropped from 45 percent in 2010 to just 18 percent. According to BNEF, European investment more than halved from its 2011 peak of $132 billion to just $58 billion in 2015—the lowest level in a decade. Europe’s decline was partly due to the aftermath of the financial crisis and investor fears over the future of the euro, but also fluctuations in the availability of subsidies that led to a boom-bust dynamic in the sector, the Guardian reports.
Several large European wind energy contracts in the first quarter of this year—including Scottish Power’s approval for the 714MW East Anglia One array—have seen European Q1 clean energy investment jump 70 percent year over year to $17 billion, according to industry newsletter Business Green.
Cleantech investment also increased in Brazil, up 36 percent to $3.7 billion for H1 2016 – significant growth compared to the overall decline in the region. Excluding figures from Brazil and the U.S., cleantech investment in the Americas was down 63 percent in the first six months of 2016.
Historically, the majority of cleantech investments are used to finance renewable energy projects, and that trend has continued in 2016. Still, the $92 billion worth of investments in asset finance of renewable energy projects worldwide marked a 19 percent year over year decrease from the unprecedented figures of 2015. European investments led this category, with a $3.9 billion investment in an offshore wind project by SDIC Power Holdings, SSE Renewables and Copenhagen Infrastructure Partners.
Smart grid technology continues to receive strong interest from venture capital and private equity firms in 2016. Contrary to normal cyclical trends, funding doubled in Q1 of 2016 from the previous quarter with $110 million raised in 14 deals compared to $56 million in 12 deals in Q4 of 2015, according to Mercom Capital Group. Overall, funding was down compared to Q1 of 2015, when the sector raised $185 million in 15 deals. The top five venture capital-funded smart grid companies of Q1 of 2016 were mPrest, which raised $20 million, Powerhive ($20 million), Smart Wires ($20 million), Telensa ($18 million) and Evatran ($10 million), Mercom reports. M&A activity was down with just two smart grid mergers in the first quarter of this year, compared with nine transactions in Q4 of 2015 and seven deals in Q1 of 2015.
As efficiency goes up and prices come down for clean technologies—whether they focus on renewable energy, smart grids, batteries, storage or electric vehicles—demand is increasing despite low oil prices and waning subsidies in some markets. Although the Financial Times reported private equity shied away from renewables in 2014 after experiencing initial lackluster returns, the growing importance and maturity of the sector may make these firms increasingly attractive to private equity.
Did you know...
According to a Business for Social Responsibility
report, international plans to address climate change are predicted to increase the share of renewable energy to 32 percent of global energy supply by 2030.
Revenue from wastewater treatment and recycle systems in the United States is expected to reach $3.8 billion by 2025, according to a report by Navigant Research
According to Bloomberg New Energy Finance
, wind-power prices are down 57 percent from 2010 to an average of $29 a megawatt-hour, while solar‑ power prices also are 57 percent lower at $57 a megawatt-hour.
The U.S. Energy Information Administration’s International Energy Outlook 2016
projects that world energy consumption will grow by 48 percent between 2012 and 2040.
The majority of CO₂ emissions attributable to households are not due to direct energy use but rather are embodied in other goods consumed by those households, according to a study in The Energy Journal
According to a report by the Center for Biological Diversity
, ten states account for more than 35 percent of the total rooftop solar photovoltaic (PV) technical potential in the contiguous United States, but are blocking distributed solar potential through overtly lacking and destructive distributed solar policy.
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